Question 2 (a,b,c,d)

E-Car, Inc. manufactures and sells electrical cars and related services since 2008. The company has recently faced headwinds from its shareholders due to the fact that it still has not managed to become a profitable business and instead burns cash at an alarming rate. You retrieved the following data from the accounting system:

Total # of Model Zs sold	71,000
Revenues generated by Model Z	5,041,000,000
Direct labor costs	355,000,000
Direct material costs	1,136,000,000
Depreciation	3,400,000,000
Sales commissions	142,000,000
Other SG&A costs (all fixed):	400,000,000
R&D expenditures	1,300,000,000
Operating profit/loss	-1,692,000,000

The CEO of E-Car Inc. is a highly talented entrepreneur but lacks accounting and financial skills. Therefore, he has asked you, the head of controlling of E-Car, Inc., to prepare a cost-volume-profit analysis for E-Cars main product, the Model Z, under different scenarios. Therefore, please perform the following analysis:

a

What is the break-even point for the Model Z? Round up to the next whole unit if necessary.

b

How many cars would E-Car need to sell in order to generate an operating profit of 2,500,000,000 ? Round up to the next whole unit if necessary.

c

What is the new break-even point if other SG&A costs (all fixed) are reduced by 30%? Round up to the next whole unit if necessary.

d

Referring back to the initial situation (thus without reducing SG&A costs), what is the operating loss if prices increase by 20% but volume declines by 10%?